Positive Thoughts About Housing Finance

1.  A new sub-prime industry with an equity requirement for buyers;

2.  The resurgence of the FHA;

3.  Attractive lender financing for foreclosed property.

I noticed this week that Countrywide has inserted a minimum 5% equity requirement for sub-prime purchase loans. Sometimes that equity does not have to come from the buyer but can be subsidized by the seller. If so, this program may be of some help. After all, it is the same buyer pool who are now defaulting who will the buyers of the future. We reinstate our defaulters to credit worthy (conforming) status when they have consistently paid their bills for two years and we sell them a house in some cases right after foreclosure occurs. It’s a great system – no one is eternally sent to debtors’ prison anymore.

The FHA became an out-of-favor program when the conventional market stole its thunder. Now it’s alive and chugging so there will be help here.

Lenders who foreclose have only the option to deal with the available buyer pool for homes. The idea that a monster sized buyer pool with 20% cash equity is waiting patiently for lower prices doesn’t compute for me. The chances of this patient money snapping up our excess inventory overnight and kick starting our home building business are not high. Look for lenders in foreclosure to provide 100% financing for buyers who will occupy and maintain to manage this problem. Empty real estate deteriorates quickly so this will be our best way out.